[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





    AT A CROSSROADS: THE POSTAL SERVICES'S $100 BILLION IN UNFUNDED 
                              LIABILITIES

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    US POSTAL SERVICE AND THE CENSUS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 4, 2014

                               __________

                           Serial No. 113-100

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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         Available via the World Wide Web: http://www.fdsys.gov
                    http://www.house.gov/reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 TONY CARDENAS, California
THOMAS MASSIE, Kentucky              STEVEN A. HORSFORD, Nevada
DOUG COLLINS, Georgia                MICHELLE LUJAN GRISHAM, New Mexico
MARK MEADOWS, North Carolina         Vacancy
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

 Subcommittee on Federal Workforce, U.S. Postal Service and the Census

                   BLAKE FARENTHOLD, Texas, Chairman
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts, 
TREY GOWDY, South Carolina               Ranking Minority Member
DOUG COLLINS, Georgia                ELEANOR HOLMES NORTON, District of 
RON DeSANTIS, Florida                    Columbia
                                     WM. LACY CLAY, Missouri



















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 13, 2014...................................     1

                               WITNESSES

Mr. Frank Todisco, Chief Actuary, U.S. Government Accountability 
  Office
    Oral Statement...............................................     5
    Written Statement............................................     7
Mr. Jeffrey Williamson, Chief Human Resources Officer and 
  Executive Vice President, U.S. Postal Service
    Oral Statement...............................................    25
    Written Statement............................................    27
Mr. Robert Moss, Chief, Budget and Resource Management, Defense 
  Health Agency
    Oral Statement...............................................    43
    Written Statement............................................    45

                                APPENDIX

Jeffrey Williamson's response to questions for the record, by 
  Rep. Farenthold................................................    64
GAO response to questions for the record by Rep. Farenthold......    84

 
    AT A CROSSROADS: THE POSTAL SERVICE'S $100 BILLION IN UNFUNDED 
                              LIABILITIES

                              ----------                              


                       Thursday, March 13, 2014,

                  House of Representatives,
    Subcommittee on Federal Workforce, U.S. Postal 
                            Service and the Census,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:27 p.m., in 
Room 2247, Rayburn House Office Building, Hon. Blake Farenthold 
[chairman of the subcommittee] presiding.
    Present: Representatives Farenthold, Walberg, Collins, 
Clay, and Lynch.
    Staff present: Ali Ahmad, Majority Professional Staff 
Member; Will L. Boyington, Majority Deputy Press Secretary; 
Sharon Casey, Majority Senior Assistant Clerk; Jeffrey Post, 
Majority Senior Professional Staff Member; Jaron Bourke, 
Minority Director of Administration; Kevin Corbin, Minority 
Professional Staff Member; Adam Koshkin, Minority Research 
Assistant; Mark Stephenson, Minority Director of Legislation.
    Mr. Farenthold. I would like to begin this hearing by 
stating the Oversight Committee's Mission Statement. We exist 
to secure two fundamental principles. First, Americans have a 
right to know that the money that Washington takes from them is 
well spent. And second, Americans deserve an effective, 
efficient government that works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers, because taxpayers 
have a right to know what they get from their government.
    We work tirelessly in partnership with citizen watchdogs to 
deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy. This is the mission of the 
Oversight and Government Reform Committee.
    Today we are going to talk about the Post Office. The 
Postal Service is broke. In the last two years alone, the 
Postal Service has defaulted on $16.7 billion in payments to 
the Treasury to pay down accrued retiree health care liability. 
In recent years, the Postal Service has also temporarily ceased 
making statutorily required pension funding payments to the 
government. Then, this year, the Postal Service was forced to 
resort to an implementation of an unprecedented, exorbitant 
rate increase as part of a last ditch effort to break even.
    The rate increase is at best a temporary fix that will 
improve revenue a little now. But higher prices will only 
encourage customers to transition from more expensive paper 
mail to virtually free electronic communication and commerce.
    Over the last several years, a number of reform plans have 
been put forward to serve the Postal Service and to save the 
Postal Service, some good, some bad. Last July, the full 
committee considered our own plan, H.R. 2748, the Postal Reform 
Act, which I believe stands the best chance to move the Postal 
Service forward and into financial solvency.
    While I ask my friends on the other side of the aisle to 
work with us on H.R. 2748 and other postal initiatives, such as 
President Obama's repeated suggestion to move to a modified 
six-day delivery, we are here today to take a step back from 
debating specific legislation and to hear from the experts on 
the current financial position of the Postal Service and the 
true scope of these unfunded liabilities facing the Postal 
Service.
    As many know, mail volume has declined by more than 25 
percent since 2006. Virtually the entire decline has been 
attributable to the diversion of paper to digital forms of 
communication. As we proceed, this has accelerated more by our 
economic times.
    Until the last few years, the Postal Service business model 
has been predicated on the idea that paper mail volume would 
continue to increase and the Postal Service would always need 
to grow. For any organization, shifting from expansion to 
contraction is difficult. But the Postal Service has made great 
strides to increase efficiency in the last 15 years. They have 
right-sized the workforce almost exclusively through voluntary 
means.
    However, the Postal Service's legacy, as a much larger 
institution, will continue to heavily impact its financial 
future. At the end of fiscal year 2013, the Postal Service had 
unfunded obligations and liabilities of more than $112 billion, 
the vast majority of which were directly to postal employees 
and retirees: $48 billion for retiree health care, $19 billion 
for pension and $17 billion for workers compensation.
    As we will hear today, even if the Postal Service is able 
to break even in the short term, the agency has no plan under 
current law to ever address even a small fraction of these 
liabilities.
    I am looking forward to hearing testimony today about the 
various obligations and liabilities and what will happen in the 
coming years if the Post Office cannot afford to address them. 
Additionally, as a strong believer in confronting these 
financial obligations head-on, I am looking forward to hearing 
testimony from the Defense Health Agency to hear how the DOD 
has been taking steps to ensure the proper funding of TriCare 
costs for Medicare-eligible retirees.
    In closing, I would like to thank the witnesses for being 
here. I apologize for the delay. We are at the mercy of a 
rather fickle House voting schedule.
    I now recognize the distinguished ranking member, the 
gentleman from Massachusetts, Mr. Lynch, for his opening 
statement.
    Mr. Lynch. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    I want to thank the witnesses for their willingness to 
appear before the committee and help us with our work.
    Despite positive developments in the area of revenue 
growth, the U.S. Postal Service clearly remains in dire 
financial straits. As evidenced by the most recent quarterly 
financial report, the agency experienced a net loss of $354 
million for the first quarter of fiscal year 2014, marking the 
19th out of the last 21 quarters that it has reported a loss.
    The Postal Service has also notified Congress that absent 
the enactment of comprehensive postal reform, it will be forced 
to default on its annual future retiree health benefit payment, 
when a $5.7 billion bill becomes overdue on October 1st. This 
will be the fourth consecutive such default.
    Moreover, the Postal Service has reported that it carries a 
series of unfunded liabilities totaling approximately $100 
billion. Among the specific obligations cited by the agency are 
an estimated $49 billion in retiree health benefit funds, $19 
billion in civil service and Federal employee retirement system 
costs, $17 billion in Department of Labor workers compensation 
payments and a debt owed to the United States Treasury with an 
aggregate principal balance of $15 billion. These figures not 
only evidence the financial condition of the U.S. Postal 
Service that is still grave, but also reiterates the urgent 
need for Congress to enact a meaningful postal reform package 
that is founded on a bipartisan agreement and aims to 
strengthen the Postal Service by building upon its unparalleled 
mail network and dedicated workforce.
    In the context of today's focus on unfunded postal 
liabilities, I would note that we could immediately and 
significantly reduce the Postal Service's net unfunded 
liability by addressing the billions of dollars in overpayments 
that the agency has made into the Federal Employee Retirement 
System. In particular, we could require the Office of Personnel 
Management to recalculate the amount of Postal Service FERS 
overpayment, using a more accurate actuarial formula that takes 
into account the unique position, salary growth and demographic 
characteristics of postal employees.
    As reported by the Office of the Postal Service Inspector 
General in September last year, the use of so-called postal-
specific assumptions in calculating the Federal Employee 
Retirement System overpayment would result in a $12.5 billion 
surplus that could be returned to the Postal Service and used 
by the agency to pay down its debt and other outstanding 
obligations. I have already introduced legislation to this 
effect in the 113th Congress. H.R. 961, the U.S. Postal Service 
Stabilization Act, has received over 160 co-sponsors, including 
ten Republicans. I urge the committee to move this bill 
forward.
    In addition, we need to revisit the onerous mandate that 
the agency prefund its future retiree health benefits 75 years 
before it is necessary. It is a requirement that is asked of no 
other corporation, public or private, and given that the Postal 
Service has already funded 49 percent of the actuarial 
liability relating to prefunding, it is a requirement that has 
drastically reduced the agency's cash supply in recent years.
    Now, I understand that the majority has called the 
Department of Defense to testify this afternoon on DOD's 
experience in setting aside funds to pay for future retiree 
health benefits under the TriCare for Life program, which is 
only 39 percent funded. While I appreciate the Department's 
perspective, I would caution my colleagues against comparing 
apples to oranges. Importantly, Defense Department costs for 
TriCare for Life are funded through the annual Congressional 
appropriations process, while the Postal Service is operated as 
a self-supporting government agency since 1971 and does not 
receive taxpayer dollars.
    In addition, I would note that the health care costs of 
retired Defense Department personnel are primarily covered by 
Medicare with only supplemental coverage provided under TriCare 
for Life. In contrast, the health care costs of postal retirees 
are primarily covered by plans under the Federal Employee 
Health Benefit Program, with the Postal Service required to 
cover the employer's shared costs.
    Mr. Chairman, I look forward to discussing these and other 
issues as we continue to work together to enact comprehensive 
postal reform. I thank you again, Mr. Chairman, for holding 
this hearing and I yield back the balance of my time.
    Mr. Farenthold. Thank you very much, Mr. Lynch.
    Members will have seven days to submit opening statements 
for the record. We will now recognize our panel.
    Mr. Frank Todisco is the Chief Actuary at the U.S. 
Government Accountability Office. Mr. Jeffrey Williamson is 
Chief Human Resources Officer and Executive Vice President at 
the U.S. Postal Service. Mr. Robert Moss is Chief of Budget and 
Resource Management at the Defense Health Agency. And Mr. Joel 
Sitrin is the Chief Actuary in the Office of the Actuary at the 
U.S. Department of Defense. I feel like I need green eyeshades 
with all these actuaries, but we are excited to have your 
testimony.
    Pursuant to committee rules, all witnesses will be sworn in 
before they testify. Gentlemen, would you please rise and raise 
your right hand.
    Do you solemnly swear that the testimony you are about to 
give will be the truth, the whole truth and nothing but the 
truth?
    [Witnesses respond in the affirmative].
    Mr. Farenthold. You may be seated. Let the record reflect 
that all witnesses have answered in the affirmative.
    In order to allow time for questions and discussions, we 
ask that you limit your testimony to five minutes. We have your 
complete written testimony here in our folders. So if you will 
summarize, hit the high points and give us a chance to ask you 
questions, that would be the most efficient use of the time.
    In front of you there is a timer that will count down from 
five minutes. When you are about to run out of time the light 
will go from green to yellow, which as it does on the streets, 
means speed up. And then the red light means stop, your time is 
expired.
    So we will start off with Mr. Todisco, your five minutes 
begins now.

                       WITNESS STATEMENTS

                   STATEMENT OF FRANK TODISCO

    Mr. Todisco. Chairman Farenthold, Ranking Member Lynch, 
members of the subcommittee, thank you for the opportunity to 
testify today on the Postal Service's unfunded liabilities.
    The Postal Service continues to face serious financial 
challenges with insufficient revenue to cover its expenses and 
financial obligations, and the continuing decline of first 
class mail volume. As shown in table 1 of our written 
testimony, the Postal Service had $100 billion of debt and 
unfunded benefit liabilities at the end of fiscal year 2013, 
consisting of $48 billion for retiree health, $20 billion for 
CSRS pension, $17 billion for workers compensation, the $15 
billion debt to Treasury and a small surplus, half a billion 
dollars for FERS pensions.
    As shown in figure 1 of our written testimony, the total of 
these unfunded liabilities and debt has grown in scale relative 
to the size of the Postal Service's operations, from 83 percent 
of postal revenue in 2007 to 148 percent in 2013. The extent of 
prefunding varies by program. Prefunding of the Postal 
Service's pension benefits has been required over decades, so 
that they are over 90 percent funded. Prefunding of retiree 
health only began in 2007, and the liability is about half 
funded at present. Workers compensation is pay as you go, so 
the entire liability is unfunded, the three programs that are 
prefunded, CSRS, FERS and retiree health, are all subject to 
different technical rules, regarding such factors as 
amortization periods, assumptions and use of surplus.
    It should be understood that these benefit liabilities are 
long-term estimates that contain a significant degree of 
uncertainty. As such, they are moving targets. But they are 
still important targets, as they represent estimated bills for 
employee service already rendered.
    There are several advantages to having the Postal Service 
prefund retirement benefits. These include first, protecting 
the future viability of the Postal Service by not saddling it 
with bills later on after employees have already retired. 
Second, protecting the retirement benefits of postal employees, 
retirees and their beneficiaries. Fully-funded benefits are 
more secure than unfunded benefits. Third, charging postal 
ratepayers for the full cost of current services, including 
retirement accruals. And fourth, protecting any third parties 
that could potentially become responsible for any unfunded 
liability.
    That said, no prefunding approach will be viable unless the 
Postal Service can make the required payments. There is a 
balance between providing short-term breathing room and 
protecting all stakeholders in the long term.
    In our prior reports, we have addressed several specific 
issues concerning the prefunding of the Postal Service's 
pension and retiree health benefits. Our points have included 
first, support for the use of actuarial assumptions that are 
specific to the postal workforce, subject to third-party 
recommendation. Second, support for modifying the retiree 
health prefunding schedule in a fiscally responsible manner. 
Third, concern about lowering the retiree health prefunding 
target from 100 percent to 80 percent, which would mean a 
permanent unfunded liability. And fourth, fixing the current 
law treatment of FERS surplus in a fiscally responsible manner. 
We made specific suggestions in each of these areas that I 
would be happy to discuss.
    Ultimately, the viability of funding promised benefits 
depends on the financial viability of the Postal Service's 
underlying business model. We continue to recommend that 
Congress adopt a comprehensive package of actions that will 
facilitate the Postal Service's ability to align costs and 
revenues and to cover all of its financial obligations.
    This concludes my prepared statement. I would be pleased to 
answer your questions.
    [Prepared statement of Mr. Todisco follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Farenthold. Thank you very much. We will finish with 
the testimony before we get to questions.
    We will now go to Mr. Williamson.

                STATEMENT OF JEFFREY WILLIAMSON

    Mr. Williamson. Good afternoon, Chairman Farenthold, 
Ranking Member Lynch and members of the subcommittee. My name 
is Jeffrey Williamson, and I am the Chief Human Resources 
Officer and Executive Vice President at the U.S. Postal 
Service. Thank you, Mr. Chairman, for calling this important 
hearing today to discuss the Postal Service's unfunded 
liabilities.
    As we have stressed over the past several years, the Postal 
Service urgently needs comprehensive reform legislation. We 
greatly appreciate the efforts of both the House and the Senate 
oversight committees to date, and we strongly urge Congress to 
pass comprehensive reform legislation this year.
    The Postal Service continues to do its part within the 
bounds of existing law to place the organization in a sound 
financial footing. We are positively pleased with our results.
    We reduced our costs by a billion dollars in 2013, and in 
total by $15 billion since the passage of the Postal 
Accountability and Enhancement Act in 2006. In addition, we 
have grown revenue by almost a billion dollars in 2013, which 
is the first revenue growth we have seen since 2008. We are 
especially proud of our employees, who are determined to do 
their part to ensure the long-term viability of the Postal 
Service through continued revenue growth and cost cutting, 
without sacrificing their commitment to high degrees of 
service, both from customers and the delivery standpoint.
    Despite our efforts and our hard work, we cannot return the 
organization to profitability or secure our long-term financial 
outlook without the passage of comprehensive reform 
legislation. The lingering effects of the great recession and 
the related impact of digital diversion continue to negatively 
impact financial results. And the pressure of significant 
unfunded liabilities continues to leave the Postal Service in a 
dire financial situation.
    We ended fiscal year 2013 with a net loss of $5 billion and 
liabilities of $61 billion. As we ended first quarter of 2014, 
we experienced a net loss of $354 million and saw liabilities 
grow to $63 billion, which exceeded our assets by approximately 
$40 billion.
    It is important, however, to consider items not included on 
our GAPP financial statement. The major factors contributing to 
our unfunded liabilities include retiree health benefits, 
pension obligations, workers compensation and debt to the 
treasury. OPM has calculated a total unfunded retiree health 
benefit liability of $48.3 billion, which is greater than the 
$18.1 billion which is shown on our GAPP accounting statement, 
which represents only the statutorily prefunded obligations we 
have defaulted on.
    We have proposed a solution to this retiree health benefit 
which requires FEHB programs to set aside health care plans 
that will fully integrate with Medicare for current and future 
postal retirees, which would virtually eliminate this future 
unfunded liability. From a pension standpoint, OPM has 
estimated a FERS surplus of half a billion dollars, rather than 
the $6 billion surplus that would exist if postal-specific 
salary growth and demographic assumptions were used.
    While addressing the current surplus, and returning it to 
the Postal Service is critical, a long-term solution does 
exist, which would be to create a defined contribution system 
similar to the TSP system that is currently within the FERS 
program.
    Employee safety and injury prevention is also a top 
priority. Unfortunately, given the size and the nature of our 
workforce, some employees do get injured. The Postal Service 
has an unfunded liability of $15.9 billion at the end of 
quarter one on workers compensation. And while we continue to 
work with our employees to bring them back to productive work, 
we ask for a FECA reform that would allow us to further reduce 
this liability.
    Due to constraints that can only be lifted through 
legislation, the organization has been forced to borrow to its 
$15 billion statutory obligation. Without legislative change, 
the Postal Service is almost certain to default on its upcoming 
$5.7 billion retiree prefunding payment.
    We also will continue to struggle with low levels of 
liquidity, which on December 31st of 2013 represented only 14 
days of average operating expense. A private sector company of 
comparable size could have as much as five times that amount.
    The bottom line is the Postal Service's total obligations 
exceed our assets by approximately $90 billion. While these 
imbalances are substantial, it is important to note the Postal 
Service has substantially funded many of these liabilities. And 
with comprehensive reform legislation, we will be able to 
fulfill our obligations to the American people and our 
employees.
    The problems we face are significant, but they are 
solvable. With help from Congress, we are confident that the 
future of the Postal Service can be very bright.
    Mr. Chairman, we look forward to continuing the work with 
you and the subcommittee to accomplish meaningful postal reform 
and I am pleased to answer any questions you may have.
    [Prepared statement of Mr. Williamson follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Farenthold. You hit that at exactly five minutes.
    Mr. Williamson. I practiced.
    [Laughter.]
    Mr. Farenthold. This may be the best timed testimony I have 
seen in my three years in Congress. Congratulations.
    Mr. Williamson. Thank you.
    Mr. Farenthold. It is my understanding our two folks from 
the DOD actually are going to do only one set of prepared 
testimony. Mr. Moss, I believe we are going to go to you for 
that.

                    STATEMENT OF ROBERT MOSS

    Mr. Moss. Good afternoon, Chairman Farenthold and Ranking 
Member Lynch and other members of the committee.
    The Department of Defense thanks you for the opportunity to 
be here today to discuss the operation of our health care 
liability trust fund.
    Public Law 106-398, also known as the Floyd D. Spence 
National Defense Authorization Act for fiscal year 2001 
authorized the establishment of two TriCare benefits for 
uniformed service retirees, their dependents and survivors who 
are Medicare eligible. Section 711 addressed implementation of 
the TriCare senior pharmacy benefit and Section 712 established 
eligibility conditions for CHAMPUS and TriCare upon the 
attainment of Medicare eligibility.
    To provide mandatory funding for these two new health care 
entitlements, the fiscal year 2001 NDAA also established on the 
books of the Treasury the Department of Defense Medicare 
Eligible Retiree Health Care Fund, also referred to as The 
Fund, codified in Title 10, Subtitle A, Part 2, Chapter 56 of 
the United States Code. The Fund is used for the accumulation 
of funds in order to finance on an actuarially sound basis 
liabilities of the Department of Defense under uniformed 
service retiree health care programs for Medicare eligible 
beneficiaries. The Fund covers certain Medicare eligible DOD, 
U.S. Coast Guard, Public Health Service and NOAA retirees, 
retiree family members and survivors, not simply over 65s and 
not active duty dependents who are Medicare eligible. It pays 
directly for medical treatment facility care, serves as a 
secondary payer to Medicare for purchased care and pays for 
pharmacy benefits provided in either setting to Medicare 
eligible uniformed service beneficiaries.
    Using an actuarially funding mechanism for the new benefits 
was consistent with the Congressional belief that decision 
makers should be confronted with the full cost of future 
benefits incurred by current personnel decisions and that 
Federal agencies should recognize the cost of all compensation 
and benefits offered to Federal employees at the time costs are 
incurred. The Fund's revenues are derived from three sources. 
The first source is Treasury funded unfunded actuarial 
liability payments, so determined by the Fund's board of 
actuaries. The original unfunded liability represents service 
performed prior to the Fund's establishment date of October 
1st, 2002. This liability is currently being amortized over 45 
years, starting in fiscal year 2003.
    The second source is annual uniformed services actual 
normal cost contributions, also determined by the Fund's board 
of actuaries. These contributions fund the health care 
liability attributable to service performed in the current year 
by uniformed service members and are paid annually by Treasury 
on behalf of the uniformed services.
    The third revenue source is investment earnings from 
investment in Treasury securities. The Fund invests in these 
securities to the extent annual fund contributions exceed 
annual health care expenditures. The Secretary of Defense 
annually transfers from the Fund to applicable appropriations 
of the Department of Defense amounts necessary to cover the 
costs chargeable to those appropriations for uniformed service 
retiree health care programs for beneficiaries who are Medicare 
eligible.
    Amounts so transferred are merged with and available for 
the same purposes, for the same time period, as the 
appropriation to which transferred. Upon a determination that 
all or part of the funds transferred from the Fund are not 
necessary for the purposes for which transferred, such amounts 
may be transferred back to the Fund no later than the end of 
the second fiscal year after the fiscal year for which the 
appropriation is available for obligation.
    The fiscal year 2001 NDAA also directed the establishment 
of a Medicare eligible retiree health care board of actuaries. 
The board consists of three members who are appointed by the 
Secretary of Defense from among qualified professional 
actuaries who are members of the Society of Actuaries. The 
members of the board serve for a term of 15 years. The board 
reports to the Secretary of Defense annually on the actuarial 
status of the Fund and furnishes its advice and opinion on 
matters referred to by the Secretary. It also reports not less 
than once every four years to the President and Congress on the 
status of the Fund.
    One of its primary responsibilities is the actuarial based 
computation of the Treasury's amortized payment against the 
unfunded liability and the uniformed services normal cost 
contribution.
    That concludes my statement, and I am happy to answer any 
questions you may have. Thank you.
    [Prepared statement of Mr. Moss follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Farenthold. Thank you very much. And you were less than 
two seconds over. We have a great panel here. Thank you all 
very much for being more considerate of our time than we were 
with your with the unscheduled votes.
    I will now recognize myself for some questions, then we 
will go to Mr. Lynch and the other members of the committee.
    Mr. Todisco, there was an editorial in the Wall Street 
Journal last week, Senator Bernie Sanders of Vermont said 
Congress in 2006 passed legislation that required the Postal 
Service to prefund over a 10-year period 75 years worth of 
future retirement benefits. Is that accurate?
    Mr. Todisco. No, Mr. Chairman, that is not quite accurate. 
There has been some misunderstanding about that, which we 
addressed in our 2012 report on this topic.
    There is no set number of years that that is prefunded for. 
What is actually prefunded, the funding target consists of all 
the estimated future payments for those who are already 
retired. And for those who are still working, current postal 
employees, a more or less pro rata portion of their future 
benefit payments based on their term of service so far. That 
means some of those payments will go beyond 75 years, because 
some of the current workers will live beyond 75 years from 
today. But it also does not include some payments that will be 
made in less than 75 years. So it is an approximation.
    The other point about that is it is not being funded in the 
10-year period. The funding schedule in the 2006 law was over 
50 years or more, although somewhat frontloaded in the first 10 
years.
    Mr. Farenthold. I just wanted to make sure we had gotten 
that clear.
    Mr. Williamson, you have some great employees at the Postal 
Service. I am friends with my letter carrier, I don't see him 
nearly as much now that I am here in Washington. The only time 
I get frustrated is when there is a long line at the post 
office, and that is not your fault, it is people refuse to mail 
early at Christmas, just like I do.
    But as someone who wants to look, I assume you want to look 
out for and take care of your employees, just like I would want 
to look after and take care of my employees, do you think it is 
a good idea that we actually have these benefits prefunded so 
we are sure there is money there and we are not at the whim of 
a Congressional appropriation to allocate money in the future?
    Mr. Williamson. Mr. Chairman, we absolutely agree. In fact, 
as I said in my opening statement, it is extremely important to 
us to be able to fund our requirements and maintain the 
commitment that were made to our employees out into the future.
    Mr. Farenthold. So if we were to follow what some folks 
have asked and actually, and I will ask Mr. Todisco, if we 
actually go to more of a pay as you go type system and don't 
prefund, what are the downsides to doing that, besides the whim 
of Congressional appropriations? Which is a pretty big one.
    Mr. Todisco. Given that the Postal Service is intended to 
be a self-sustaining agency, to the extent there are unfunded 
liabilities, there is always a concern about whether those will 
be able to be funded in the future.
    Mr. Farenthold. So mail volume is going down, right? So it 
is not like there is going to be, unless there is some sort of 
major paradigm change, there is not going to be more money 
coming into the Postal Service in the foreseeable future. Would 
that be an accurate forecast?
    Mr. Todisco. What is happening and what has happened over 
the last number of years is that these obligations have grown 
in size relative to the size of the organization supporting it.
    Mr. Farenthold. And Mr. Williamson, you would agree, you 
don't really see a turnaround in mail volume, though we may 
have some revenue enhancement opportunities elsewhere?
    Mr. Williamson. I think there are a couple of areas within 
mail volume. With first class single piece letters, it is 
unlikely for first class single piece letters, for the 
continued decline to rise. However, with standard mail, 
advertising mail, some of the innovative things we are doing 
there, it is likely that we can maintain that volume in the 
system. And then the package growth in the organization.
    Mr. Farenthold. You don't think that would be enough if we 
were to go on a pay as you go basis without massive rate 
increases to pay the retiree benefits?
    Mr. Williamson. I think the important element here is, as 
Mr. Todisco mentioned earlier, we are 91 percent funded on our 
CSRS obligation, we are overfunded on our FERS obligation. And 
we do have a plan that would allow us to virtually fully fund 
our retirement health care obligation. So from a Postal Service 
standpoint, we view that we have solutions and plans that would 
allow us to fully fund those obligations.
    Mr. Farenthold. So you would like to see some of the postal 
reform we are talking about here come to be?
    Mr. Williamson. Yes.
    Mr. Farenthold. All right. I will now go to Mr. Lynch and 
allow him his chance to do some questions.
    Mr. Lynch. Thank you, Mr. Chairman. Let me just follow up 
on the pay as you go sort of scenario. From 1970 to 2006, we 
were on a pay as you go. When I say pay as you go, what I mean 
is, I sat on the pension fund for the Iron Workers, we had to 
make sure that our obligations were met as they arose. So that 
is what I mean by a pay as you go system, in case there is some 
question about that term.
    So if we look at the, let's look at the obligations of the 
FERS situation first. The Office of Personnel Management's most 
recent calculation estimated that the Postal Service had 
overpaid its FERS pension account by approximately $500 
million. This surplus has significantly decreased since 2011 
when it was reported that the surplus was $11.4 billion. The 
key here is, however, that we would like to use demographics 
specific to postal employees, because there are a lot of ups 
and downs in private industry. I know, I was in the 
construction industry, work was very choppy.
    But for most of our postal employees, they go in there, 
they go to work, they have a set number of hours they work each 
week, there are no ups and downs in the economy basically that 
disrupts that Postal Service. Got to get the mail out every 
single week.
    And the Hay Group reported that the total using postal 
specific demographics, that the surplus could be as high as 
$12.5 billion. Mr. Todisco, are you familiar with that?
    Mr. Todisco. Yes, I am.
    Mr. Lynch. Are you in agreement with sort of the 
calculation there, or is that off base here?
    Mr. Todisco. Well, we haven't analyzed their calculation. 
It is plausible that it could turn out that way, and we do 
support the use of postal specific assumptions.
    Mr. Lynch. Okay, that would result in a more accurate 
number?
    Mr. Todisco. Yes, that is right.
    Mr. Lynch. Mr. Williamson, why would that be important? 
Could you elaborate on why it is important to use the postal 
specific characteristics in determining what the FERS 
overpayment or the unfunded liability might be?
    Mr. Williamson. Absolutely. From our perspective, using 
assumptions that match our workforce and our demographics, 
given we are self-sustaining and self-funding, makes sense when 
you think about what that true long-term liability and 
obligation is. So we support using the salary growth and 
demographic assumptions to calculate the FERS payment.
    Mr. Lynch. Great. Mr. Williamson, would you support 
returning the surplus to the United States Postal Service?
    Mr. Williamson. Yes.
    Mr. Lynch. And Mr. Todisco, is it correct that Congress has 
not yet instructed OPM how to deal with any surpluses generated 
within the FERS pension account?
    Mr. Todisco. That is correct, Congressman. Under current 
law, the Postal Service cannot realize any financial benefit 
from that surplus.
    Mr. Lynch. Okay. Thank you.
    Would GAO support a one-time transfer of the surplus to go 
to paying down some of the liabilities? I have a bill out 
there, not to ring my own bell, but under one of the bills I 
have, H.R. 961, it would actually cause the transfer of the 
surplus to pay down some of these liabilities. Is that 
something you would support?
    Mr. Todisco. To transfer the surplus to take care of the 
unfunded liabilities?
    Mr. Lynch. The obligations, yes. Not to use it for 
operational, but for paying down some of the debt that is 
outstanding?
    Mr. Todisco. Yes, that makes complete sense from a holistic 
standpoint, yes.
    Mr. Lynch. Has the GAO provided any legislative suggestions 
on how to deal with this?
    Mr. Todisco. We haven't drafted any language but we have 
offered a number of suggestions for how to deal with the 
surplus.
    Mr. Lynch. Okay.
    I hate to drag the DOD in here, but we have already brought 
you in. Let me just ask, Mr. Moss, in your testimony you stated 
that under the DOD system, most payments derive from three 
sources, is that correct?
    Mr. Moss. Yes, sir.
    Mr. Lynch. Are any of those sources funded by Congressional 
appropriations?
    Mr. Moss. The payment that the Department of Defense pays 
in to fund the normal cost contribution, that is part of their 
appropriated top line that comes to them each year.
    Mr. Lynch. Okay, so Congress appropriates money for you to 
meet your prefunding requirement?
    Mr. Moss. That is correct.
    Mr. Lynch. Okay. That is quite different than what the 
Postal Service is dealing with.
    Mr. Williamson, does any of the Postal Service receive 
appropriations from Congress to meet its prefunding liability?
    Mr. Williamson. No, we do not.
    Mr. Lynch. So apples and oranges here. I see I have 12 
seconds left, so why don't I stop right there. Thank you.
    Mr. Farenthold. Thank you very much.
    We will now go to our Vice Chair, Mr. Walberg, for 
questions.
    Mr. Walberg. Thank you, Mr. Chairman.
    Mr. Todisco, your testimony stated that GAO supports 
legislation that would shift USPS remaining retiree health care 
fixed payments to actuarially determined payments, which is a 
provision of both the House version and the Senate version, as 
I understand it, of the Postal Reform Act in the President's 
fiscal year 2015 budget proposal. But GAO has expressed concern 
about proposals that would lower the funding target for the 
retiree health care liability from 100 percent to 80 percent, 
something currently in the Senate version of the Postal Reform 
Act and in the President's fiscal year 2015 budget.
    If the funding targets are lowered, what happens if USPS 
doesn't have the funds set aside to pay the benefits?
    Mr. Todisco. OPM has indicated that they are not sure 
legally what exactly would happen if those benefits can't be 
paid at some point. There is uncertainty about that.
    Mr. Walberg. So that just sits out there?
    Mr. Todisco. That sits out there.
    Mr. Walberg. Without the ability to plan?
    Mr. Todisco. Hypothetically, people could lose benefits. 
Taxpayers could be burdened. But we don't know exactly what 
will happen.
    Mr. Walberg. I guess that went to my follow-up question, 
how might taxpayers be affected by the decision to lower 
funding targets. And you are saying we don't know. They could 
be brought in?
    Mr. Todisco. That is right. OPM has told us they don't 
know.
    Mr. Walberg. Okay. USPS, Mr. Todisco, currently has an 
unfunded liability for retiree health care of $48 billion. How 
sensitive is this projection to the assumptions for medical 
inflation? And secondly, if for instance, medical inflation 
increases by 1 percent, what happens to the size of the 
unfunded liability?
    Mr. Todisco. The most recent, it is a highly sensitive 
number to those assumptions, Congressman. The most recent 
estimates are that if medical inflation were, say, 1 percent 
higher, the unfunded liability would be somewhere on the order 
of $15 billion more than it is today.
    Mr. Walberg. Fifteen billion. You are testifying that an 
increase of 1 percent in medical inflation would result in over 
a 30 percent increase. Does this sensitivity to medical 
inflation factor in GAO's recommendation that USPS fully fund 
the benefit?
    Mr. Todisco. No, it doesn't. Our recommendation is really 
for other reasons outside of that issue.
    Mr. Walberg. According to your testimony, USPS's debt and 
unfunded liabilities have become a large and growing burden, 
increasing from 83 percent of USPS's revenues in fiscal year 
2007 to 148 percent of revenues in fiscal year 2013. Your 
testimony also notes that USPS holds unrestricted cash of $2.3 
billion, which would cover only nine days of average daily 
expenses.
    What effect does USPS debt and unfunded liability have on 
the agency's ability to make capital improvements?
    Mr. Todisco. Well, it is a severe constraint, certainly.
    Mr. Walberg. So I guess again we are looking here at a 
setting that everything is affected, the viability, the 
planning, the uncertainty. All goes to the bottom line of more 
than just the problem, but ultimately a taxpayer problem as 
well?
    Mr. Todisco. That is potentially, but again legally how it 
would play out, we don't know.
    Mr. Walberg. Okay. Mr. Chairman, I yield back.
    Mr. Farenthold. Thank you very much.
    We will now recognize Mr. Clay for five minutes.
    Mr. Clay. Thank you, Mr. Chairman. Congress does not 
provide any funds to the Postal Service to meet its prefunding 
requirement. And that is a pretty big difference. In fact, 
comparing the DOD to Postal Service is a little bit like 
comparing apples to oranges. And you know, today's hearing is 
meant to look at the Postal Service's unfunded liabilities. 
Since the Majority invited DOD to testify, I wondered what 
DOD's unfunded liability is for their retiree health care 
program. And committee staff found that at the end of fiscal 
year 2013, DOD's Medicare eligible fund had assets of 
approximately $187 billion, while containing a liability of 
$502.4 billion.
    Mr. Chairman, let me caution my colleagues about where we 
are going on this path. And I hope it is not to dismantle the 
Postal Service. I know my constituents rely heavily on the U.S. 
Postal Service, and just like you do, Mr. Chairman, at 
Christmas time. It is perplexing to hold this agency to one 
standard and not other agencies. We are talking about $100 
billion in liabilities, but yet nobody has talked about 
dismantling the Federal Government when we have $17 trillion in 
national debt. It is just perplexing to me.
    And then I see that the President has come out in his 
budget advocating five-day service. I know the Majority 
couldn't be for anything the President has offered up.
    [Laughter.]
    Mr. Clay. Let me ask a question. Since there is $502.4 
billion in liability from DOD's Medicare eligible fund, is that 
correct, Mr. Moss?
    Mr. Moss. That is the total liability, sir. The unfunded 
portion of that liability, I would defer to Mr. Sitrin, is far 
less than that.
    Mr. Clay. Would it be the difference between $187 billion 
and $502 billion, is that right? Mr. Sitrin? Okay. You are a 
mathematician. What is that, about $300 billion?
    Mr. Sitrin. Yes, sir.
    Mr. Clay. About $315 billion, right?
    Mr. Sitrin. Yes.
    Mr. Clay. At the end of fiscal year 2013, the Postal 
Service had assets of approximately $47.3 billion, and 
liability of approximately $95.6 billion, is that correct, Mr. 
Williamson?
    Mr. Williamson. That is correct.
    Mr. Clay. Based on these numbers, the Postal Service is 49 
percent funded, while the DOD is just 39 percent funded. In 
other words, DOD's unfunded liability is much larger than the 
Postal Service's. So, Mr. Moss, should we be concerned that DOD 
will not be able to meet its unfunded liability, given that 
they are so much larger?
    Mr. Moss. No, sir, I don't think that given the current 
circumstances and the way the fund is funded each year by DOD 
and by Treasury as that continues then I don't think there is a 
problem with the Department of Defense meeting its unfunded 
liability at the end of that 45 year period.
    Mr. Clay. What if Congress decides not to appropriate any 
more funds for that?
    Mr. Moss. Then there would obviously be a problem.
    Mr. Clay. Let me ask Mr. Todisco, what would be the 
increased rate to consumers of the U.S. Postal Service in order 
to eliminate the unfunded liability and to fix the issue?
    Mr. Todisco. I don't know that figure, Congressman, as to 
how it would translate into a postage rate.
    Mr. Clay. Okay. It seems to me that Congress is a large 
part of the reason to blame for this problem and this hearing 
is intended to focus on that. DOD's requirement to prefund its 
health care liability isn't the same as the Postal Service's. 
Mr. Todisco, would you agree that the Postal Service is being 
required to prefund in more aggressive pace than DOD?
    Mr. Todisco. They are both using a 100 percent funding 
target. The Postal Service is farther ahead. And yes, as we 
have reported, the schedule that the Postal Service has had to 
follow has been an ambitious schedule in that while it is a 50-
year schedule, approximately, payments are frontloaded in the 
first 10 years.
    Mr. Clay. Mr. Chairman, I see my time is expired. I yield 
back.
    Mr. Farenthold. Thank you very much.
    I would like to follow up. I know my colleagues on the 
other side of the aisle have made a distinction that we may be 
comparing apples to oranges here based on funding sources. I 
wanted to examine that and talk a little bit about the 
rationale for what we are doing.
    The Department of Defense is funded almost exclusively 
through appropriations, is that not correct, Mr. Moss?
    Mr. Moss. Yes, sir.
    Mr. Farenthold. And Mr. Williamson, the Postal Service 
basically gets no appropriations and funds itself through the 
rates it charges its customers, is that correct?
    Mr. Williamson. That is correct.
    Mr. Farenthold. So even though we are talking about, they 
say apples and oranges, because the Defense Department gets 
appropriations, well, they are using part of the money that 
they get from whatever source to prefund their retirement and 
the Postal Service, I think we are asking that they do the 
same.
    Let me ask you, Mr. Moss. You touch a little bit in your 
testimony on the rationale for why DOD should have to, or is 
required to do this prefunding. Could you elaborate on that a 
little bit?
    Mr. Moss. Yes, sir. Prior to the establishment of the fund, 
whenever there was discussion about the funding of the old 
CHAMPUS program or TriCare, it was primarily focused with the 
medics and looking at what were the additional benefits or the 
expansion of benefits that would be afforded to our 
beneficiaries. With the establishment of the trust fund and the 
Department having to pay into the fund each year, and I would 
add that when the Department pays into the fund, as the fund 
stood up, the DOD top line was not increased by the amount of 
the payment into the trust fund.
    So DOD was told, you still have your essential basic 
funding level, and from that you will fund, you will start to 
prefund the trust fund. When that happens, now you have much 
more involvement and much more scrutiny from senior management 
within the Department, looking at what are the various benefits 
and what is the impact of expanding or in some way changing 
those benefits, as related to the payment into the fund. So 
there is much more involvement and much more interest on the 
part of senior management other than just the medics about the 
health care benefit that we are affording our beneficiaries.
    Mr. Farenthold. And then at the risk of sounding like 
Captain Obvious, I had some folks from the Post Office in my 
office this week talking to me. And one of their talking point 
was that they are the only agency within the U.S. Government 
that is required to prefund.
    Mr. Moss, is the Defense Department an agency of the United 
States government?
    Mr. Moss. It is.
    Mr. Farenthold. And you are required to prefund?
    Mr. Moss. That is correct.
    Mr. Farenthold. I just want to have them scratch that 
talking point off so we could talk about some other things next 
time that we are up.
    Let me see, I think I have one more question here, if you 
can give me one second to find it. It actually already got 
asked by one of my colleagues, so Mr. Lynch, we will let you 
have another round of questioning.
    Mr. Lynch. Thank you, sir. I appreciate that, Mr. Chairman.
    I think the point we are trying to make is, and the Postal 
Service is trying to make is, they are the only U.S. agency 
government department that is required to prefund and pay it 
for themselves. I think the distinction is that you receive 
money from Congress in an appropriation every year to prefund 
your benefits. That is the distinction that we are trying to 
make there.
    According to Mr. Williamson's testimony earlier, about 20 
cents of every dollar of revenue that the Postal Service brings 
in, and their revenue is they sell stamps, that is basically 
it, that is how the Postal Service funds its operations. People 
can't believe that, they don't get tax money, they just sell 
stamps. That is why stamps cost what they do.
    So 20 percent of every dollar goes for paying the health 
care expenses. And in 2013, total health care costs for the 
Postal Service was approximately $13.4 billion.
    Now, Mr. Williamson, how much of those costs were for 
current employees versus retirees? Can you tell me that?
    Mr. Williamson. Yes. Only $4.7 billion of that $13.4 
billion was for active employee premiums. The bulk of it.
    Mr. Lynch. So the huge part is all retirees? That makes 
sense, they are older, they are using more medical services. 
That makes sense. So if eligible, are Postal employees mandated 
to enroll in Medicare, since most of these people are all 
retired, are they required to enroll in Medicare?
    Mr. Williamson. No, they are not required to enroll in 
Medicare. Only 90 percent of our current retirees are in 
Medicare Part A, and 76 percent in Medicare Part B.
    Mr. Lynch. So there is a huge chunk of them that are not?
    Mr. Williamson. Correct.
    Mr. Lynch. Mr. Moss, can I ask you, are military service 
members required to enroll in Medicare if they are eligible?
    Mr. Moss. Yes, sir.
    Mr. Lynch. Okay, well, that might be a huge difference.
    Mr. Williamson, in your testimony you mentioned the Postal 
Service proposal to integrate current health care benefits with 
Medicare to create a Medicare wraparound plan for employees. 
Could you explain why this is important for the Postal Service?
    Mr. Williamson. Absolutely. Currently, our unfunded 
liability is based on a FEHB plan that does not integrate nor 
coordinate benefits with Medicare, which means the cost of that 
plan is much higher. So when you calculate, and Mr. Todisco and 
some of the other actuaries can get into the details, but when 
you calculate the actuarial estimate of what that cost is on a 
higher per capita cost plan, your liability grows.
    What we are proposing is, we have already paid us and our 
employees $27 billion in contributions to Medicare, and we 
would like to require our employees to take on Medicare once 
they become eligible and create wraparound type plans that 
would coordinate their benefits and fully integrate with 
Medicare, therefore Medicare being the primary payer and the 
FEHB plans, the Postal Health care plans, to be the secondary.
    Mr. Lynch. I have to say, Mr. Moss, that sounds a lot like 
TriCare. That sounds a lot like how you handle DOD benefits 
through TriCare.
    Mr. Moss. Yes, sir. We share with CMS our manpower 
documents as far as our retirees. And when a beneficiary 
obtains care from a civilian provider and the bill is sent to 
CMS and they pay their share, then they see that that 
beneficiary is dual eligible, they electronically transfer that 
claim over to our fiscal intermediary and then we wind up 
paying the rest of that health care bill.
    Mr. Lynch. Now, this might be obvious, but does having 
Medicare as the primary insurer, does that reduce DOD's health 
care expenses?
    Mr. Moss. It does reduce health care expenses as they are 
today. But prior to the establishment of the TriCare for Life 
program in 2001, DOD was not paying anything toward the care of 
those beneficiaries once they became Medicare eligible.
    Mr. Lynch. Okay, so now you are picking up some.
    Mr. Moss. Now we are picking up some, but it is still far 
less than it would be if we had to fund the entire benefit.
    Mr. Lynch. Which is what Mr. Williamson's situation is.
    Mr. Moss. Yes, sir.
    Mr. Lynch. Mr. Williamson, has the Postal Service estimated 
the cost savings derived from this integration proposal where 
you have a wraparound Medicare situation?
    Mr. Williamson. Yes, sir, we have. We, based on our 
actuarial estimates, full Medicare integration would reduce our 
unfunded liability from the $48.3 billion to $3 billion.
    Mr. Lynch. Say that again?
    Mr. Williamson. It would virtually eliminate our unfunded 
liability and maintain the same level of benefits for our 
retirees.
    Mr. Lynch. Wow.
    Mr. Williamson. Yes. It would reduce from the $48.3 billion 
to $3 billion.
    Mr. Lynch. Now, would the Postal Service need authorization 
from Congress to initiate that integration plan?
    Mr. Williamson. Yes. We would need OPM to be required to 
set aside specific plans within FEHB that would be required to 
integrate with Medicare and coordinate the benefits.
    Mr. Lynch. Okay, and I am a former union president, so I 
want to ask you, is this integration plan, is this subject to 
collective bargaining with the postal unions?
    Mr. Williamson. We have already, over a year ago we 
proposed a plan that would actually take postal retirees 
outside of the FEHB plan and create our own plan. Subsequent to 
that, we have worked very closely with our stakeholders, the 
unions' management associations, to come up with a proposal 
that we can all agree on that would maintain these components 
but do it within the umbrella of FEHB. So we are not proposing 
that it would be something we would collectively bargain in 
terms of the design. What we are requiring is that OPM, for 
retirees, require Medicare and require the integration within 
those plans.
    Mr. Lynch. Right. Well, I think design is probably a 
management function. But I would encourage you to continue your 
talks with those unions, because they have been very, very 
cooperative and progressive in terms of meeting the Postal 
Service's challenges.
    Mr. Chairman, I yield back.
    Mr. Farenthold. Thank you very much, and we will now go to 
Mr. Walberg for a second round of questions.
    Mr. Walberg. Thank you, Mr. Chairman. Just basically one 
question, Mr. Todisco. As I understand it, the CRS account of 
USPS has a projected deficit of $19.8 billion, while the FERS 
account has a projected surplus of just $500 million. While 
using the USPS specific demographic assumptions may slightly 
change these numbers, I think for the purposes of today they 
would be illustrative.
    As an actuary, do you think it makes sense to treat these 
and other employee benefit liabilities in a holistic manner?
    Mr. Todisco. Yes, I do, Congressman. I would actually 
expand that to include the debt to Treasury. Over the last 10 
years, the debt has increased in part to make retiree health 
prefunding payments that were made. So you have money going 
from one section to another.
    Economically, the CSRS falls from retiree health and debt 
to Treasury. In one sense, there is unfunded obligations and 
debt, they are all debt, they are all payments that have to be 
made.
    Mr. Walberg. Thank you. Thank you, Mr. Chairman.
    Mr. Farenthold. Thank you very much. Did you have any more 
questions, Mr. Lynch?
    I will say we appreciate your testimony. It will help us as 
we move forward with various iterations of postal reform. I 
should have caught Mr. Clay before he left, but we actually 
don't agree with the President on five-day delivery. We want 
modified six-day delivery. So it not a complete agreement 
there, but we are moving on our side in the same direction.
    Mr. Lynch. I was getting nervous there.
    [Laughter.]
    Mr. Farenthold. We appreciate our witnesses' testimony and 
the members. Thank you very much, and we are adjourned.
    [Whereupon, at 3:25 p.m., the committee was adjourned.]


                                APPENDIX

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